Research On Systemic Risk And Spillover Effect Of China’s Financial Industry In COVID-19

The outbreak of the new crown epidemic at the beginning of 2020 has seriously affected the normal operation of China’s macro economy,and has also led to dramatic fluctuations in China’s financial markets.Along with the growing trend of mixed operations in China’s financial sector,the links between various financial sectors have become increasingly close and the interconnectedness of the financial sector has deepened.The report of the 19 th National Congress emphasised the need to "resolutely guard the bottom line of no systemic risk".A quantitative study of the level of systemic risk in China’s financial sector and the inter-industry risk spillover effects in the context of the new crown epidemic can provide insight into the current situation of systemic risk in China’s financial sector and put forward reasonable recommendations to achieve the objective of reducing systemic risk and maintaining the stability of the financial system.This paper selects the daily closing prices of four financial sub-sectors classified by Shenyin&Wanguo,namely banking,securities,insurance and diversified finance,as the research data,and uses Eviews and R language software to conduct an empirical analysis of the systemic risk and risk spillover effects of China’s financial sector: First,the GARCH model and DCC-GARCH model are used to measure the Va R,Co V and Co V of each financial sector before and after the outbreak of the new crown epidemic respectively.First,the Va R,Co Va R and ΔCo Va R values of each financial industry before and after the outbreak of the new crown epidemic are measured using the GARCH model and the DCC-GARCH model,and the changes in the level of systemic risk in China’s financial industry caused by the outbreak of the new crown epidemic are analysed by comparing the changes in risk indicators of each financial industry before and after the outbreak of the new crown epidemic.The risk spillover matrix among financial sectors is constructed to analyse the risk spillover effect among financial sectors in China during the New Crown epidemic from three perspectives: static,dynamic and marginal spillover.The conclusions of this paper:(1)The occurrence of the New Crown epidemic will increase the systemic risk and risk spillover in China’s financial sector.(2)The risk correlation between China’s financial sectors is strong.(3)The New Crown epidemic event mainly affects China’s financial sector by influencing investor sentiment.(4)During the full sample period,the securities industry was the centre of systemic risk spillovers and inputs to our financial sector.(5)The diversified financial sector is more vulnerable to the impact of the New Crown epidemic.Finally,this paper puts forward policy recommendations for the empirical results in terms of strengthening epidemic prevention and control,optimising epidemic information dissemination channels and strengthening macro-prudential supervision,respectively.